Wholesale Rates
Tremendous changes have taken place over the last decade in the wholesale delivery
and pricing of electricity. These changes
have had a direct impact on the ability of electric cooperatives to acquire stable energy
supplies at sustainable prices. Before
electricity markets began deregulating, most distribution cooperatives purchased power
from G&T cooperatives that in turn purchased power from the local investor-owned
utility or maintained their own generation facilities.
Without the development of a wholesale market, power was priced on a
cost-plus system. Wholesale rates were
stable, but often high.
 As the
wholesale power market has evolved, G&Ts have been forced to change the way they
operate as well. Most G&Ts now rely on a
mix of internal generation assets, long-term contracts with a number of IOUs and
Independent Power Producers, and the ability to purchase power from the spot market when
prices are low or demand is high. This
flexibility and competition within the wholesale market has led to unimagined volatility. While prices are often lower in this new
environment, price spikes can quickly shatter financial stability. G&Ts are under increasing pressure to build
equity to meet credit requirements from market sellers, and they are being forced to
undertake sophisticated risk management strategies.
Additionally,
deregulation has spawned the need for both the G&Ts and the distribution co-ops to
serve an increasingly sophisticated customer base. Large
commercial customers place great emphasis on electricity pricing and reliability when
considering locations for new plants or logistics centers.
Retail customers and distribution cooperatives are increasingly interested
in load control technology, dispersed generation, and renewable energy.
The
implications for an established G&T are immense.
Not only does the G&T have to develop the capabilities to function in a
much more sophisticated environment, it must also acknowledge these changes when dealing
with its customers – the distribution cooperatives.
The driver in this relationship will be the G&Ts ability to restructure
wholesale rates in a way that ensures the G&Ts ability to stay financially healthy
while also responding to its member cooperatives’ demands.
Management
Consulting Services will work closely with a G&T and its member cooperatives to ensure
everyone’s needs are taken into account. MCS
will help develop wholesale rates that not only support the G&Ts financial stability,
but also help meet its member’s goals – whether they center on growth,
stability, price, or technology.
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